Case C-510/16, Carrefour Hypermarchés – at the cross roads between tax and state aid

A decade ago, French supermarket chains sold and even rented videos to their customers. Although the supermarkets paid a tax on every transaction, they now want their money back. They claim that the charge was not a tax but was part of a mechanism for financing an illegal state aid to the French film industry.

A decade ago, people could buy or rent videos from large French supermarkets. The supermarkets, and presumably their customers, then paid a tax on every such transaction. After a few years of dutifully paying the charge, the supermarkets went to the French courts requesting a repayment order from the judge.

The backdrop to their claim was EU state aid law. Put simply, EU state aid law requires Member States to notify the EU Commission of any aid scheme they want to bring into effect. The Commission will then assess the scheme for its compatibility with the internal market. If the Commission decides that the scheme is not compatible with the internal market, then the EU Member State cannot introduce its scheme.

The supermarkets admitted that the French State had notified the EU Commission back in 2004 of the intended aid scheme benefiting the French film industry and audiovisual sector. Namely, it was to be an aid scheme financed by taxes on cinema tickets, television broadcasters, and the sale or hire of videos. The supermarkets also acknowledged that in 2006 the EU Commission had approved the aid scheme for the period up to and including 2011. They also acknowledged that the EU Commission had decided in 2011 to permit a continuation of the aid scheme up to the end of 2017.

However, the supermarkets object to what the French State did in the lead up to the 2011 decision, namely, nothing. In their view, there was a substantial change in the rules and financing of the aid scheme and between the circumstances leading up to the 2006 decision with those of the 2011 decision. Consequently, the supermarkets contended that France should have made a fresh notification to the EU Commission.

To support their claim, the supermarkets cited the obligation in Article 4 of the EU’s aid Regulation 794/2004 which says that any substantial changes, like a 20% increase in the aid authorised, must also be notified to the EU Commission. Since France had not done this, the supermarkets claim this makes the aid scheme incompatible with the internal market. As such, that transformed the tax they had paid into an illegal levy, and accordingly they were entitled a refund.

By way of response, the French State admitted that revenues generated from the tax had increased. In respect of the increased revenue generated by the taxes (up from 300 million euro in 2006 to 600 million euro in 2011), the State explained that this had come about from a different taxation of the television broadcasters and those supplying televisual services. The State took the view that it had done nothing wrong here because in respect of the increased revenue given to the French cinema body known as the CNC this had all been notified to the EU Commission and approved of back in 2007, and France had seen no reason to make a fresh notification to the EU Commission since the essence of the aid scheme had not been changed.

In any event, France explained that calculations about the aid allocated by the scheme should not look at the total amount of aid which had been given to the CNC but any such assessment should instead focus on the amount which the CNC had actually allocated to the cinema and audiovisual sector – that amount being considerably less because the CNC was permitted to hold a financial reserve, and because of the other deductibles which were permitted by French law.

On hearing these arguments, the judges at both the court of first instance and then the Versailles court of appeal found for the French State. However, when the dispute was escalated up to the Conseil d’Etat, the judges at France’s highest administrative law court did not know how to apply EU law. For whereas the EU Commission had taken its decision on the basis of a forecast of 16 million euro being generated by the tax each year, in fact the amount generated totalled more than 60 million euro a year. Thus, they wondered what was to be done where the EU Commission’s calculation had subsequently turned out to have been based on incorrect evidence? A further uncertainty facing the judges at the Conseil d’Etat turned on the fact that they did not know how to calculate whether there had been a substantial change made to the aid scheme for the purposes of the EU’s aid Regulation 784/2004. Consequently, the judges decided to make a preliminary reference to the CJEU.

Questions Referred
My unofficial translation of the questions asked by the Conseil d’État reads:

Where an aid scheme is financed by taxation, and legal changes are made to the scheme which have a substantial impact on it particularly in regard to its financing, then does a substantial increase in the proceeds generated by the tax – as compared to the Member State’s forecast when properly notifying the EU Commission of the changes prior to their implementation – constitute a substantial change within the meaning of Article 88(3) of the EU Treaty, (now Article 108 TFEU), requiring a new notification?

Where an increase of more than 20% in the initial budget of an existing aid scheme constitutes an amendment to the aid scheme, how does Article 4 of Commission Regulation 784/2004 apply; and in particular,
a) what is its relation to the obligation to notify an aid scheme as enshrined in Article 88(3) EU Treaty (now Article 108 TFEU), an obligation which must be satisfied beforehand?

b) if exceeding the 20% threshold in Article 4 requires a fresh notification, then is that to be assessed in relation to the amount of the revenue allocated to the aid scheme or on the basis of the expenditure actually allocated to the beneficiaries (excepting those amounts which have been placed in reserve or those which are deductible by the state)?

c) on the assumption that compliance with the 20% threshold is assessed in relation to the expenditure on the aid scheme, should such an assessment be made by comparing the maximum general expenditure set out in the decision with the total expenditure subsequently granted by the allocating body to the entire aid scheme; or rather by comparing the maximum amounts stipulated for each category of aid mentioned in the decision with the corresponding budget heading of that body?

There is no mention in the referring court’s order that this French rental and sales tax on videos flows from the requirements of EU copyright law. If that is not the case, so this French preliminary reference would indeed be about a copyright tax and its compatibility with EU competition (state aid) law, then it would come at a time when there is already a reference in the CJEU’s ‘In-Tray’ from the Latvian courts about the compatibility of a copyright tariff with the requirements of EU competition (cartel) law; see further, Case C-177/16, Autortiesību un komunicēšanās konsultāciju aģentūra – the dominant position of a copyright collecting society.

A further curious aspect to this French preliminary reference is that the French Council of State made its order of reference on 21 September 2016, which was the day before the CJEU handed down its judgment in Case C-110/15, Nokia Italia. In that preliminary reference, which originated from the Italian Council of State, the referring court had mentioned in passing the potential relationship between state aid and copyright levies – a mention which was neither subsequently reflected in the national court’s questions nor addressed by the CJEU in its eventual judgment; see further, Case C-110/15, Nokia Italia. Consequently, if it turns out that this French tax on video rentals and sales does indeed have something to do with copyright law, then this French preliminary reference could interest not just EU competition lawyers but IP lawyers alike.